21 February 2009

OTAs Lose Hotel Tax Battle in Mouse's House

In a landmark ruling which is the clearest to date - the big online travel agencies - Expedia, Orbitz and Travelocity have lost a major battle in taxation war with Cities throughout the USA, in this case - the City of Anaheim, home to Disneyland and several other theme parks.

Up until now the courts have been divided in the issues with rulings on both sides. The Anaheim case was much clearer as the ordinance was better written.

At issue is the collection and retention of taxation due to the city for prepaid (net) hotel rooms.

There are two issues.

Issue 1 - the taxable amount collected on the gross rate by the OTAs has not been transmitted to the City of Anaheim. What was transmitted was the taxable amount based on the net. So despite the wonders of transparency on the web - the OTAs we retaining the difference.

Issue 2 - the taxes collected for rooms not taken have not been transmitted to the cities. While not an issue in this case this has been part of the legal battle between the taxation authorities and the OTAs.

In the Anaheim case after a two-week evidentiary hearing, the Hearing Officer found that the online travel companies were both "operators" and "managing agents" as defined by the city's ordinance, which is key in establishing their responsibility and liability. The ruling therefore means that the OTAs as a class have to fork over $21 million. Multiply this by the number of other municipalities and the money could be significant to all 3 companies.

This battle which has been simmering for years will see the OTA's having to find a way to handle taxes now in a clearer and more open way. This in turn will lead to enough transparency to figure out how much the profit per room booking they are making.

Isn't the law a wonderful thing...

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